The fund's marginal holdings could be a drag on performance
18-Jun-2001 •Research Desk
Launched around the peak of the tech bull-run in 2000, Pru-ICICI Technology Fund was a gala success and garnered Rs 500 crore. The fund seeks to invest in technology-intensive industries, which could include such diverse sectors as life sciences and finance.
Caught in the ICE vortex, it has been a downward journey for Pru-ICICI Technology Fund since launch. The fund took off with a widely invested portfolio but with top holdings in the volatile pack of K-10 stocks. With the sharp correction in technology stocks coinciding with the fund's launch, the net asset value almost instantly dipped below par. Worse, with a fully-invested portfolio, the fund had little cash to cushion the fall in NAV. Gradually, Pru-Tech has exited its K-10 holdings in favour of top-rung technology stocks. While the fund has held a bulk of its investments in software and telecom sectors, it has also done away with investments in the media sector.
Pru-Tech is down (annualised) 55% since launch, which is in line with the fall in BSE IT index. Curiously, despite a mandate to broadbase its portfolio, the fund has had a marginal exposure to "other" technology intensive sectors. A higher exposure here could have stemmed the fall in NAV. With a drop in portfolio value, the weightage of unlisted stocks has seen a significant jump to 4.69% in March 2001. Further, the fund has had a reasonable number of marginal holdings at 17.6% in May 2001.
Sectoral funds are long-term bets and hence, require patient investing. While the fund's top holdings are quality picks, its marginal investments (including unlisted stocks) could be a drag on performance. While fresh investments should be avoided, existing investors have little choice but wait for a sustained and sharp rally for the fund to revive.